Market capitalization, commonly called market cap, is the market value of a publicly traded company’s outstanding shares. Market capitalization is equal to the share price multiplied by the number of shares outstanding. Since outstanding stock is bought and sold in public markets, capitalization could be used as an indicator of public opinion of a company’s net worth and is a determining factor in some forms of stock valuation.
Market capitalization is used by the investment community in ranking the size of companies, as opposed to sales or total asset figures. It is also used in ranking the relative size of stock exchanges, being a measure of the sum of the market capitalization of all companies listed on each stock exchange. In performing such rankings, the market capitalization are calculated at some significant date, such as June 30 or December 31.
What is Net worth?
Net worth is the value of all the non-financial and financial assets owned by an institutional unit or sector minus the value of all its outstanding liabilities. Since financial assets minus outstanding liabilities equal net financial assets, net worth can also be conveniently expressed as non-financial assets plus net financial assets. Net worth can apply to companies, individuals, governments or economic sectors such as the sector of financial corporations or to entire countries.
Market Cap Terms: Traditionally, companies were divided into large-cap, mid-cap, and small-cap
Large Cap Stocks:
These are often stocks of Blue-chip companies which are established enterprises with large reserves of cash at their disposal. It is interesting to note that the larger size of the large cap companies does not mean that they grow more rapidly. In fact, it is the small stock companies that tend to outperform them over the longer time frame. But large cap stocks do come with the benefit of allowing the investors to reap higher dividends in comparison to the smaller and mid cap company’s stocks, ensuring that the capital is preserved over the long term period.
Mid Cap Stocks:
These are the stocks of medium sized companies that have a market capitalization of INR 250 Crore to about INR 4000 crore. These companies have a well recognize name in the market which brings along the benefit of potential for growth, as well as the stability that is usually accompanied with being a seasoned player in the market. Mid cap companies have a good track record of steady growth and are very similar to blue chip stocks barring their size. In the long term these stocks do and grow well.
Small Cap Stocks:
As is suggestive of the name, small cap stocks have the smallest value in the market as compared to its counterparts. These are small sized companies that have a market capitalization of up to INR 250 and have the potential to grow at a good pace in the future. Investors who are willing to commit to a long term and are not very particular about the current dividends, and are willing to stand their ground during price volatility, can make significant gains in the future. As an investor you can buy these stocks when they are available at a cheap price during the initial stage of the company. There is no surety about the how the company will perform in the market since they are relatively new. Because these small cap companies are new they are highly volatile and their growth impacts the value and revenue of the company to a huge extent.
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